Bearish reversal turns Equity trend bearish into October
- SPX reversal post CPI looks to be the technical catalyst for selling into October
- Mid-term election year seasonality argues for pullbacks starting this week
- Cycle composites peak 9/13-9/15 and show persistent selling into early October
Tuesday’s selloff looks important and negative technically, and likely jumpstarts the decline into early October. The abrupt reversal post CPI happened in one fell swoop early Tuesday, erasing gains of the last few days, coinciding directly with the bearish seasonal trends which normally cause September trading peaks near the eighth trading day of the month in mid-term election years. Selling pressure in Equities also looks to be coinciding with a US Dollar and Treasury yield rally, as well as Cryptocurrency decline. All these sudden reversals likely could persist into early October but should ultimately pave the way for higher prices in Q4 given how bearish sentiment has become in recent weeks. Overall, while pinpointing an exact low in price is difficult without time lining up, this could prove exact if markets sell off into early October. The 8/16-9/6 decline could be equaled in price and time down near 3680 into October 5-7, so this might be an initial of price and time to watch carefully. Cycle composites also agree with a possible early October low, which would equate to around three weeks of selling pressure. Allocations to cash and/or defensive positioning look right until October.
Mid-term Election year seasonality turns down this week
While most understand mid-term election year seasonality to be negative in September, averaging -0.90% vs. an average -0.70% in most Septembers, I thought it might be worthwhile to share how the average September stacks up throughout the month.
As charts of SPX, DJIA0.80% , NASDAQ and Russell 2000 illustrate below, the normal trend for mid-term Septembers tends to peak around the 8th-9th trading day in September, declining into the 13th trading day.
This is happening on cue given Tuesday’s decline and likely means that trends over the next week should prove bearish. Following any minor bounce from 3886-3900 higher, further weakness could get underway, which I assume might lead markets lower into October.
Interestingly enough, the 61-calendar day rally in SPX from 6/16 into 8/16 has a 50% retracement in time this week which gives Tuesday’s reversal added significance as a potentially important and negative development. Additional dates of importance lie near 9/22, then 10/6-7 and then 10/16 for possible changes of trend.
(SPX data from 1928, DJIA from 1900, NASDAQ from 1971 and Russell 2k from 1978)
My Cycle composite turns down into October
In the last few weeks, I’ve detailed technical reasons why stock indices might rally into mid-September.
My composite created in my cycle finder tool shows a September peak that trends down into October before turning back higher into Mid-December. The ideal time for a peak should happen this week, though the period from 9/22-9/28 looks particularly negative.
While a late October bottom differs from some of the time studies and varies slightly from forecasts from the Mass Pressure index chart, those will have to be rectified into October. At present, cycles look negative for at least the next three weeks, and it’s right to expect last week’s lows could be broken and a possibility of a move to SPX 3650-3750.
Mass Pressure index cycle chart also peaks this week and trends down into Oct 5-7
Interestingly enough, the Mass Pressure index which I’ve discussed before which was created initially by W.D. Gann shows a peak this week and pullback into early October.
This is followed by a rally into the middle to latter part of the month.
Importantly, while this cyclical forecast shows strength in mid-to-late October from an initial October low in the first week, the other composite has a negative slope into late October before a rally. Then both composites show strength into December.
The key takeaway is that both cycle composites show weakness over the next three weeks. Additionally, both composites show strength from late October into December. The middle few weeks seems to be the time when these differ. That period will be analyzed when time grows closer.
Bitcoin and many Cryptocurrencies should likely follow Equities lower into October
BTCUSD’s huge downdraft Tuesday is a technical negative which likely results in a challenge and possible break of 9/7 lows into early October before a technical stabilization begins. The abrupt reversal directly coincided with what’s being seen in US Equity and many international equity markets following the stronger than expected inflation data.
As daily charts show, the early 9/13 gains hit a perfect 61.8% Fibonacci retracement of the prior August-September drawdown which also touched the uptrend from June lows before reversing. However, it’s also insightful to note that the 58-day rally (calendar day) from 6/16-8/15 shows a prominent turn 9/13 at an exact 50% Time retracement. Thus 29 days from 8/16 arrives at our peak on 9/13.
Furthermore, projecting forward, 9/19 has significance as a 61.8% Fibonacci time target while 10/12 is quite strong as a 100% target as well. Support could materialize near 18540, but expect that 17592 might come into play before a bottom in October and turn back higher. Conversely, while not immediately expected, movement back over 22,781 turns trends back to bullish. At present, investors should concentrate on possible lows into 9/19 or more likely near 10/12.
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